What You Need to Know About Filing Your 2023 Tax Returns
Did you know that those early “advances” on tax refunds might not be what they seem? In fact, they are interest-laden loans camouflaged as instant relief.
With the 2023 tax season on the horizon, it’s crucial to equip yourself with the knowledge to sidestep these financial traps. The information below will set you on the right path to navigating the maze of tax preparation.
What You Need to Know Now about Filing Your 2023 Tax Returns
It’s time to start thinking about your 2023 taxes . . .
Each year, U.S. taxpayers “forget” to claim billions in “returns.” Your “returns” (officially called “refunds”) are likely to come from either (i) excess taxes withheld from your paycheck or (ii) two big tax credits-the earned income tax credit (“EITC”) and/or the child tax credit (“CTC”).
For 2023, the maximum EITC ranges from $600 for workers with no children to $7,430 for workers with three or more children. The maximum CTC for 2023 is $2,000 per child. At the state level, there’s also a New Mexico working families tax credit equal to 25 percent of the EITC plus an expanded New Mexico child tax credit (up to $600 per child) and a bigger New Mexico low-income comprehensive tax rebate (up to $730 per household). Don’t leave money on the table by failing to file!
File even if you owe money to the IRS.
There are separate IRS penalties for failing to file and failing to pay. If you owe and file more than 60 days late, the minimum IRS failure to file penalty can reach $485. New Mexico has failure to file penalties as well.
Free is good!
As always, our recommendation is to USE FREE TAX PREPARATION SERVICES if possible. Volunteer Income Tax Assistance (“VITA”) or Tax Counseling for the Elderly (“TCE”) volunteers are trained to help low-income taxpayers of any age and must pass a test each tax season.
- Find a VITA or TCE site near you at irs.treasury.gov/freetaxprep.
- In north-central New Mexico (including Albuquerque), the major tax prep provider is Tax Help New Mexico (VITA). Call 505-750-3885 or visit TaxHelpNM.org to make an appointment.
- Throughout New Mexico, the major tax prep provider for seniors and low income taxpayers is AARP TaxAide. Find an AARP site near you at AARP.info/TaxAidelocator, or by calling 888-227-7669.
Paid Tax Preparers.
If you use a paid preparer, use an enrolled agent. “EAs” must pass a rigorous IRS test and take 72 hours of tax classes every three years. (CPAs and attorneys are also subject to strict education requirements.) Click here to find an enrolled agent near you. There is also an IRS directory of other credentialed preparers. Don’t just assume a commercial tax preparer is qualified! Studies have shown the error rate among unqualified preparers to be as high as 89 percent.
Avoid tax preparation loans.
“Advances” against your refund are really interest-bearing loans. And “no fee” tax preparation from a commercial preparer is likely an interest-bearing loan of the tax preparation fee. Interest rates in New Mexico are high, as high as 36% on loans under $10,000, and as high as 100% on loans of $10,000 or greater. A month of interest on a $5,000 tax preparation loan at 36%, compounded daily, is over $200. If a paid preparer offers to give you cash, say “No.”
Know your rights under the Albuquerque Tax Preparer Ordinance.
If you have your taxes prepared in Albuquerque, know your rights under that city’s Tax Preparer Ordinance, including:
- The right to see a posted fee schedule (in English or Spanish) before you agree to have your taxes prepared.
- The right to see your tax preparer’s qualifications (in English or Spanish).
- The right to receive a free copy of your tax forms as filed.
- The right to get your personal documents back on request.
In addition, tax preparers:
- May not require that you borrow against your refund, i.e., may not force you to agree to a loan.
- May not ask you to sign a blank or incomplete return.
It’s not too late to file prior year returns.
If you haven’t filed for 2020, 2021, or 2022, you may have thousands of dollars in unclaimed money waiting for you. VITA and TCE providers typically are available to prepare prior year taxes after the 2023 filing deadline, which this year is 4.15.24. Beware: you can only get your federal refund if you file your Form 1040 within three years of the original filing deadline.
The final date to file and get your money for 2020 is 5.16.24; for 2021, 4.17.25; for 2022, 4.17.26. Get moving!!!
Are you self-employed or an independent contractor? There’s more to do!!
If you are self-employed or an independent contractor, be sure to have complete records of income and expense ready for your income tax preparer. You can find out exactly what you need by looking at IRS Publication 334.
Remember, too, that if you are a gig worker or work on line, you may receive Forms 1099-K this year from third parties like Uber, eBay, or PayPal if you have earned more than $600 on one or more of these platforms. Although you will generally need to report income from any Forms 1099-K you receive, you also will be able to take a deduction for related expenses, like gas or the cost of goods sold. Keeping good records of all income and expenses in 2023 is a must!
There is some concern that personal transactions, like splitting a check at dinner through Venmo, will result in a Form 1099-K. The head of the IRS, Commissioner Danny Werfel, recently promised that his agency will be issuing more guidance on Form 1099-K reporting in the coming weeks.
Finally, if you are self-employed or an independent contractor, remember the New Mexico gross receipts tax! Click here to see if you must pay GRT.
More questions? Call an attorney at the New Mexico Legal Aid Low Income Taxpayer [Controversy] Clinic:
- Grace Allison, 505-768-6134;
- Nathaniel Puffer, Director, 505-814-6593; or
- Anne Rothrock, 505-545-8543.